Daily Briefing: ECB edges towards exit door

LONDON (Reuters) - No policy changes are expected from the European Central Bank's governing council today but it may tweak a few lines of its official guidance to give clues about the timing and speed of the bank's exit from unprecedented bond purchases later this year.

Having promised to review their communication stance in “early” 2018, policy-makers will be under pressure to give investors at least a few hints to prepare them for a broader revision of policy around the summer months. ECB President Mario Draghi’s news conference will start at 1330 GMT as usual.

Before that, it emerged that German industrial orders fell more than expected in January, down a sharp 3.9 percent compared to a consensus forecast of 1.6 percent lower. That was the weakest reading since last January but the figures can be volatile. The government makes the point that the overall trend is still up, with orders up 0.9 percent in December and January compared to the previous two months.

British investigators have announced that a nerve agent was used to deliberately poison a former Russian double agent and his daughter last weekend in the city of Salisbury. Given the inaccessibility of such substances, security analysts say this raises the suspicion that a state actor was involved in some way. It is not clear what more is likely to emerge from the investigation at this stage; British interior

MARKETS

The ebb and flow of trade war anxiety continued overnight, with world markets taking some heart that U.S. President Trump’s planned tariffs on steel and aluminium would come with some country exemption – at least for Canada and Mexico.

But while markets await the formal announcement of the measures, which may now be as late as Friday, and the expected retaliatory actions in Europe and Asia, they have to negotiate today’s ECB meeting, news of a blistering surge in Chinese exports last month and tomorrow’s U.S. February employment report.

Despite the raw nerves over trade, Wall St stocks steadied late on Wednesday and the S&P500 ended little changed – with S&P futures pointing slightly higher again first thing today.

Emboldened by the Chinese trade news, which saw exports jump over 40 percent during a holiday-distorted February but up an annual 20 percent over the first two months of the year, Shanghai stocks were up 0.5 percent and HK stocks up as much as 1.5 percent.

The optics of a surge in Chinese exports and its national trade surplus just as the U.S. government rails against Chinese trade practices and starts imposing tariffs won’t be lost on investors. G20 finance ministers and central bankers gather in Buenos Aires at the end of next week and trade will now almost certainly dominate the agenda.

Tokyo’s Nikkei and Seoul’s Kospi were also up briskly on Thursday, with dollar/yen a touch lower overnight. Mexico’s peso and Canada’s dollar regained some of their recent trade-related losses.

On the other hand, euro/dollar was a fraction lower and testing levels below $1.24 as the ECB meeting was set to take centre stage later. Markets are on high alert for any change of future policy guidance from ECB chief Draghi as new staff growth and inflation forecasts are published, though the running assumption for many people is that the central bank will not want to jar markets right now with trade tensions high, volatility on the rise and inflation expectations and growth readings ebbing again in the high-frequency data.

Uncertainties around the weekend’s inconclusive Italian election only add to that cocktail and may argue for a more neutral message at this point. News this morning of a bigger-than-expected drop in German industrial orders in January will reinforce that caution too. European stock futures are pointing to modest gains at the open.

Bond markets are broadly stable, with 10-year U.S. Treasury yields hovering about 2.8750 percent and with one eye on tomorrow’s February payrolls. Private sector job readings from the ADP on Wednesday topped forecasts again, with gains of more than 200,000 during the month, but all the attention will be on earnings after a tick higher in wages in last month’s labour report was one of the triggers behind the recent stock market correction.

Police officers stand guard in front of a forensics tent in a cordoned-off area in the centre of Salisbury, Britain, March 7, 2018

Elsewhere, Bitcoin recoiled back below $10,000 again overnight as Japan's financial regulator moved to punish seven cryptocurrency exchanges, suspending business at the two of them, in an effort to shore up consumer protection after the $530 million theft of digital money from Tokyo-based Coincheck. The U.S. Securities and Exchange Commission also said many online trading platforms for cryptocurrencies should be registered with the regulator and subject to additional rules.

Turkey’s lira was a touch weaker and domestic bond yields climbed after ratings agency Moody’s cut Turkey’s sovereign credit rating deeper into junk territory overnight. Moody’s downgraded it one notch to Ba2, citing a continued loss of institutional strength and increased risks from the wide current account deficit. On Wednesday Turkey’s central bank kept interest rates steady, and said it would keep policy tight faced with double-digit inflation.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own. —